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Court upholds multimillion-dollar verdict for Arizona sky-diving company

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Monday, March 12, 2012
By VICTORIA PELHAM
Cronkite News

A federal appeals court upheld a multimillion-dollar award Monday to Skydive Arizona Inc. for false advertising, trademark infringement and cybersquatting by another company, Skyride.

But a divided three-judge panel of the 9th U.S. Circuit Court of Appeals rejected a lower court’s attempt to double parts of the $6.6 million in damages. It said that increase was aimed at punishing Skyride, which is not the purpose of enhancing damages.

Skyride employees and attorneys declined to comment. Neither Skydive Arizona nor its attorneys returned calls seeking comment.

Skyride was described in court papers as a national advertising company that marketed skydiving services and sold certificates for people to redeem at sky-diving drop zones.

Although it did not actually have diving operations in Arizona and was not affiliated with Skydive Arizona, Skyride maintained “a plethora of websites” such as PhoenixSkydiving, YumaSkydiving and others, that targeted customers in Arizona. It led customers to believe that Skyride had operations in the state and that Skydive Arizona would accept Skyride certificates, the court said.

Skydive Arizona said customers from as far away as North Dakota became “very angry with, and blamed Skydive Arizona for, problems caused by Skyride,” after the customers tried to redeem the useless certificates.

Skydive Arizona sued Skyride in 2005. In February 2009, a U.S. district court judge ruled in favor of Skydive Arizona on the false advertising claim and in October 2009 a jury ruled for it on the other claims.

The jury awarded damages of $1 million for false advertising and another $2.5 million for trademark infringement. It also awarded Skydive Arizona $2,500,004 in lost profits and $600,000 for cybersquatting. The district court also permanently enjoined Skyride from operating in Arizona.

On appeal, the 9th Circuit panel rejected Skyride’s claim that the damages were “grossly excessive” in light of the company’s annual revenues of $23 million nationwide.

“They (Skyride) fail to persuade us that the size of the damages award, in relation to the size and revenue of the company, proves that the jury’s damages award was objectively excessive or shocking to the conscience,” the appeals panel wrote.

It said Skydive Arizona did prove harm to its goodwill, even though it did not give jurors a specific formula for calculating damages.

“It is true that, at closing, counsel for Skydive Arizona asked the jury to ‘fill in’ the amount of damages that it found reasonable to compensate Skydive Arizona for its actual damages,” the panel wrote. “However, counsel’s comment was not an invitation for the jury to conjure the amount of damages out of the vapor.”

Instead, the court said Skydive Arizona provided “ample evidence” of damage to its business reputation and goodwill caused by Skyride.

The court also rejected Skyride’s challenge that the lost-profits award was inaccurate, saying Skyride did not object to the calculations at trial, so cannot bring them up on appeal.

But the court did agree with Skyride that U.S. District Judge Mary H. Murguia was wrong to double the damages award, saying she focused improperly on punishing Skyride.

“Instead of discussing the appropriate award to compensate Skydive Arizona or to deter Skyride, the district court focused on the need for Skyride to ‘appreciate’ and ‘accept the wrongfulness of their conduct,’” the panel wrote.

The court also rejected a counterclaim by Skydive Arizona that the injunction against Skyride should be nationwide, saying the lower court was correct to impose an injunction “tailored to eliminate only the specific harm alleged.” It agreed with the lower court that there was no proof that Skyride had operated illegally outside of Arizona.

In a dissent, Judge John Noonan said that the lower court needed to determine actual damages “by evidence,” pointing to standard accounting methods for calculating a company’s goodwill value.

“Nothing . . . in the record supports the jury’s assessment of these damages as amounting to $2,500,000,” he wrote.